Financial Integration and Financial Development in East Asia

This article analyzes differences in patterns of financial development across the major East Asian economies, particularly for the three largest economies of the region (China, Japan and South Korea), in the context of the possibilities for greater regional financial integration. It argues that these differences in patterns of financial development present an economic challenge to regional financial integration efforts, in addition to differences in levels of financial development and possible political barriers. The article reviews arguments for and against financial openness, the East Asian experience with financial integration, how economies in the region have responded to shocks and what they may do to continue to thrive in the future. It also discusses policy options for the future, including regulatory reform and coordination, and various possible risk management policies and institutions.